ADC to face audits: Bill ties corporation funding to a look at the books

  • Richard Creagan

KAILUA-KONA — The Hawaii Agribusiness Development Corporation has successfully avoided recent attempts by legislators to saddle it with an audit.

But on Tuesday, with the Senate’s passage of House Bill 1561 HD1 SD2, two audits became more or less an inevitability. The measure has tied ADC funding to a performance audit and a financial audit by way of a new budgeting tactic courtesy of House Finance Committee Chair Sylvia Luke that segments budgeting for specific programs.

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The maneuver allows for legislators to tie stipulations to program funding. In the past, ADC Executive Director James Nakatani fought any attempt at an audit of the corporation with the backing of Scott Enright, former director of the Hawaii Department of Agriculture.

Both men contended an audit would create a time crunch on the organization that would hinder its ability to carry out its functions. But faced with the corporation’s extinction, opponents of an audit have stood down. Rep. Richard Creagan (D-Kona, Ka‘u) said House leadership is aligned in its intention to sign the bill as-is and send it to Gov. David Ige as early as this week.

“This is kind of a major win,” Creagan said. “It will provide for a lot more transparency about what ADC does and going forward what their future relationship with the agriculture department should be.”

Despite a small staff of only four or five regular employees, over the previous five years the Legislature has appropriated more than $250 million to the corporation to purchase land and conduct market research.

The corporation isn’t required to submit financial statements and was criticized last year by lawmakers for failing to meet a requirement to submit annual reports to the Legislature.

Creagan said ADC has never been upfront about precisely where the money has been spent and how decisions have been made about its distribution.

State auditor Les Kondo, who’s held the position for nearly three years, said Creagan is far from alone in his concerns.

“Of all of the state agencies, the Agribusiness Development Corporation is the one that’s come up the most (in requests for an audit),” said Kondo, adding requests have come from state senators, representatives, those with stakes in the agriculture industry and from random members of the public.

Sen. Donovan Dela Cruz, chair of the Senate Committee on Ways and Means, is a proponent of the work ADC has done. He said he’s been confused by allegations of a lack of transparency levied against the organization, citing their obligation to follow Sunshine Law, list items on meeting agendas and allow the public to testify.

However, he said it’s time to move forward, which is why he passed the measure through Tuesday.

“I’m not going to discount people’s feelings because if that’s how they feel, they must have some reason why they feel like that,” Dela Cruz said of those suspicious of ADC activities. “I think having the audit will help clear up some of those things.”

“If we’re going to constantly have this hanging over ADC’s head, it’s better to just … have the audit … so we can move forward with ag,” he continued, saying the bigger picture is doubling food production locally and reducing Hawaii’s reliance on imports.

Dela Cruz added that despite a lack of financial statements, a lot of the funding in question is capital improvement money. Therefore, much of what the corporation does can be gleaned from studying its capital improvement budget, which he said the Legislature finalizes.

Creagan conceded there may be options for those concerned to accumulate more financial information minus an audit, but also pointed to the fact that ADC has consistently fought an audit. That, combined with the lack of financial reporting and the failure to submit required annual reports on the part of the corporation, validates an audit request in his view.

“I’m not saying this is an evil empire,” said Creagan, adding no one has levied specific charges of wrongdoing against ADC at any point. “There’s just a lot of concern about a lack of transparency. … Going forward we can answer those questions.”

HB 1561 appropriates $100,000 that the Hawaii Office of the Auditor will use to hire an outside firm for purposes of conducting the financial audit. Kondo will head up the performance audit in-house. The bill requires both audit reports be made to the Legislature 20 days before the start of the 2021 session.

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One potential outcome, Creagan said, is that ADC could be folded into the Department of Agriculture. Dela Cruz said the two have different functions and that doing so wouldn’t make sense, adding he feels HDOA lacks the proactive qualities of ADC.

“A lot of this controversy, I believe, is because (the ADC) is actually doing something, which is a positive thing,” Dela Cruz contended. “If that’s part of the growing pains and how we’re going to double food production and decrease imports, than so be it.”

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